Wednesday, September 19, 2007

Sun Capital Steps Up With a Bid For All of Kellwood (KWD)

SCSF Equities (Sun Capital) decided that its 9.9% stake in Kellwood Co. (NYSE: KWD) was not enough, and today the firm offered to acquire all the remaining shares that they don't own for $21.00 per share - which represents a premium of 38% to yesterday's closing price.

Sun Capital has been a shareholder of the Company since May 2007, and filed their original 13D in June. Due to disappointing financial performance shares of Kellwood have been cut in half this year, with a significant drop occurring since July.

Sun Capital said the steps necessary to maximize shareholder value will require more aggressive action than has currently been undertaken, will take time to implement and will be extremely difficult to execute in a public company context.

Sun Capital said they believe Kellwood has a fundamentally attractive collection of assets, which, over time, could potentially generate higher levels of profitability and growth.

A Copy of the Offer Letter:

Members of the Board:

Sun Capital Securities Group, LLC and its assigns (“Sun Capital”) is pleased to submit this non-binding proposal to acquire 100% of the capital stock of Kellwood Company (“Kellwood” or the “Company”) for $21.00 per share in cash. Our proposal represents a premium of 38% to the most recent closing price of $15.17.

Sun Capital will require 30 days of financial and legal diligence to finalize its proposal. We are prepared to bridge the entire purchase price from our own capital, and there will be no financing contingency in the definitive purchase and sale agreement. Our strong preference is for management to retain their leadership roles going forward, although our proposal is not contingent or otherwise predicated on management’s participation.

This letter represents only the intent of Sun Capital, does not constitute a contract or agreement, is not binding, and shall not be enforceable against Sun Capital.

Background and Rationale for Proposal

As you know, Sun Capital has been a shareholder of the Company since May 2007. We currently hold 2.56 million shares representing approximately a 9.9% ownership position on a fully diluted basis, which we believe makes Sun Capital the Company’s second largest shareholder.

As a significant shareholder, we want to thank management for the time they have spent with us over the past six months explaining their business strategy and listening to some of our ideas on how to maximize value for all shareholders. We too believe that Kellwood has a fundamentally attractive collection of assets, which, over time, could potentially generate higher levels of profitability and growth. In this regard, we greatly appreciate management’s efforts to drive the business and create shareholder value.

However, even before the disappointing financial results reported on September 6th, we have been troubled by the Company’s inconsistent financial performance. The Company’s stock price performance has also materially underperformed over the past several years on an absolute basis as well as relative to its peers. Such absolute and relative underperformance has sharply accelerated in the run up to and aftermath of the Company’s earnings announcement on September 6th. Furthermore, we do not see any visibility on a material and sustained recovery in shareholder value in the near to intermediate term absent a change in strategy.

Sun Capital believes that management has made a strong effort given the challenges the industry and the Company face, and the constraints Kellwood is under as a public company. Our fundamental concern is that, while the Company’s core assets may be attractive, those assets are not configured in a manner to maximize value for shareholders in both the near and long term. We believe that the steps necessary to maximize shareholder value will require more aggressive action than has currently been undertaken, will take time to implement and will be extremely difficult to execute in a public company context.

In conversations with management, we discussed these issues and, in that context, the potential benefits to all shareholders of a sale of the Company. Management suggested that we submit a specific proposal for review by the full Board to the extent we desire to pursue this course.

Timing and Alternatives

Sun Capital has a long history of completing transactions quickly and efficiently. We are prepared to move forward on an expedited basis to reach a definitive agreement and consummate a transaction. At the same time, as a large shareholder of the Company, we are open to other alternatives that could generate more value, on a risk and time adjusted basis, for all shareholders. Accordingly, we would not object to the Company evaluating other potential alternatives in parallel with working with Sun Capital to finalize a transaction.

Please note that, while Sun Capital is open to other potential alternatives, we do not believe that time is on the Company’s side. We are concerned that a drawn out process to explore strategic alternatives, or waiting until the business or markets improve, holds a material risk of leading to a further diminution in shareholder value. Therefore, we hope that the Company does not hesitate in engaging in a process with Sun Capital, and we encourage the Company to explore in parallel only those alternatives which are credibly actionable in a reasonable time frame.

Overview of Sun Capital

Sun Capital (www.SunCapPart.com), based in Boca Raton, Florida with offices in New York and Los Angeles, and with affiliate offices in London, Tokyo and Shenzhen, is a leading private investment firm focused on leveraged buyouts and investments in market leading companies. Sun Capital focuses on niche opportunities of corporate divestitures, turnarounds, underperformers and special situations that can benefit from our in-house operating professionals and experience. Sun Capital invests in companies with a leading position in their industry, long-term competitive advantages, and significant barriers to entry.

Sun Capital has nearly $10 billion of equity capital under management. With a team of over 150 people possessing significant operational and transactional experience, Sun Capital affiliates have invested in more than 165 companies, with aggregate sales in excess of $35 billion, since the firm’s inception in 1995.

Sun Capital has been the most acquisitive private investment firm in the U.S. over the past four years, closing 107 transactions from 2002-2006, including 30 acquisitions in 2005 and 33 transactions in 2006 and 27 transactions to date in 2007, and was recently listed in a leading M&A trade publication as the fifth most acquisitive company of any kind in the United States. Sun Capital has received numerous accolades over the years, including being named the Private Equity Firm of the Year for both 2003 and 2004 by the M&A Advisor, a leading periodical for the M&A industry. In addition, we have been highly acquisitive on a global basis, completing 23 international transactions since 2002, including 15 platforms.

Next Steps

Thank you very much for your consideration, and we look forward to hearing from you soon. Sun Capital will be available to discuss our proposal with representatives of the Board at your convenience. In order to comply with its disclosure obligations, Sun Capital intends to amend its 13-D by Tuesday, September 18th to reflect our interest in acquiring the Company, at which time this letter will become public.